Economists Split Over Size of Colombia Interest Rate Cut
(Bloomberg) -- Economists are split over whether Colombia is about to slash interest rates the most since the global financial crisis to revive weak economic growth.
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Until now, the central bank has ignored President Gustavo Petro’s calls to speed up monetary easing. Now, a significant minority of analysts think it will finally do what the government wants when the bank’s board meets Monday.
Twenty of 27 analysts surveyed by Bloomberg forecast that the bank will lower its key rate to 10.25%, from 10.75%, the fifth straight half percentage-point reduction. The other seven, including BBVA Colombia SA, Bancolombia SA and UBS Securities LLC predict a reduction of three quarters of a percentage point, which would be the biggest in 15 years.
In recent months, two of the seven board members have voted to lower rates more aggressively, arguing that inflation has been tamed and that the economy needs a boost. But, until now, a majority of policymakers have rejected this case for fear that consumer price rises might not slow to target quickly enough.
Annual inflation has halved to 6.12% from its post-pandemic peak last year, but it’s still more than twice the central bank’s 3% target. Economic activity has also been stronger than expected, expanding 3.7% in July from a year earlier.
Central bank governor Leonardo Villar will announce the decision after 1 p.m. in Bogota.
What Bloomberg Economics Says
“We expect Colombia’s central bank to cut its benchmark rate to 10.25% from 10.75% at its Sept. 30 meeting. That would match 50-basis-point reductions in July, June, April and March and bring total easing to 300 bps since the cycle began in December. It’s likely to be another split decision, with some policymakers voting for a bigger cut. Forward guidance will likely anticipate more reductions, with the magnitude depending on new data.”
— Felipe Hernandez, Latin America economist
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Earlier this month, the case for a faster monetary easing seemed stronger, especially after the Federal Reserve’s half-point interest rate cut. However, the government’s failure to pass its 2025 budget in congress has sparked renewed concern about the nation’s fiscal outlook.
Elsewhere in the region, central banks in Mexico, Chile, and Peru have cut interest rates at recent meetings, while Brazil lifted borrowing costs amid renewed inflationary pressures.
--With assistance from Rafael Gayol.
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